Sam and Sue wants to provide full funding for their 3 year old daughter who is e

Question

Sam and Sue wants to provide full funding for their 3 year old daughter who is expected to start college when she is 18. The current annual cost of a 4 year college is $38,000 which is expected to increase by 3.5% per year. Sam and Sue expect to earn 4.5% on their investment. They have already saved $13,000 in a college fund for this purpose. Calculate the additional amount they should save by the end of every year in order to accumulate funding for 4 years of college when their daughter turns 18.

$13,171

$10,866

$10,750

$11,754

Explanation / Answer

Year College fees required PV of Cash flow at year 18 18 38000*(1.035)^15 63663.26 63663.26 63663.26 19 38000*(1.035)^16 65891.47 65891.47*1/1.045^1 63054.04 20 38000*(1.035)^17 68197.67 68197.67*1/1.045^2 62450.65 21 38000*(1.035)^18 70584.59 70584.59*1/1.045^3 61853.04 268336.99 PV of cash at year 18 total 251020.98 Less amount already saved (13000*1.045^15) 25159 Money to be accumulted at the 18 year 225862 Amount To be accumulated each year                  10,866.00

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